3. Craigslist

Investors: Ebay acquired 25% of equity in 2004,
rumored to be over $30 million.

Analysis: This
newspaper killing, Ebay threatening, online flea market is
run like a non-profit--founder, Craig Newmark and co. don't give
a damn about generating revenue or profit--and more power to
them. But if Craig ever wanted to sell Craigslist, he'd probably
want to get something closer to true value for it--which means we
need to think about the company's real earning power.

It's tough to get formal business metrics for Craigslist, but
ClickZ has
summarized a recent report from Classified Intelligence that
should help. Some estimated metrics:

Let's assume that each of Craigslist's 25 employees costs about
$125,000 a year, all in. That's probably high--Craigslist is run
like a non-profit--but it should be in the ballpark. This adds up
to about $3 million of salary and other HR costs. Let's assume
that Craigslist will grow this year, and let's assume that it
spends another few million on prosaic costs like rent, insurance,
travel, etc. Total estimated 2008 operating expenses:
$7.5 million.

On the "cost of sales" line, let's assume that Craiglist spends a
boatload on servers and bandwidth to keep the site running
smoothly. Craigslist's content is not at all bandwidth
intensive--all light text, no computation or transactive
processing like eBay or Google--so this should keep its costs
well below those of other huge global sites. Let's call it $50
million a year. (This is probably high--grateful for any help in
refining).

Add all that together and use the CI revenue estimate, and you
have a business with about $80 million in revenue and,
say, $25 million in operating profit. Apply a 10X revenue
multiple and/or 25X operating income multiple, and you would have
a company worth about $750 million. But obviously
Craigslist is worth a heck of a lot more than that.

Craigslist's
Real Value

Let's assume that, instead of charging for job ads in only 11
cities, Craigslist charged for all job ads (currently 2 million a
month). Let's assume that it also charged for another 5 million
of the 30 million ads on the site each month. Let's assume that
Craigslist users were so horrified by the outrage of being
charged even a de minimus listing fee that two thirds of these
listers stormed off in a huff so that the 7 million of paid
listings dropped to, say, 2.5 million a month. And let's assume
that Craigslist charged its standard $25 job listing fee for all
of them. What would that generate in revenue? $62.5
million per month, or $750 million a year.

Let's further assume that this outrageous affront to a minority
of users--$25 per listing!--would require huge customer service
and processing costs, so that Craigslist's overall cost base
jumped to $250 million a year. Then we'd have a business with
$750 million in revenue and $500 million of operating
profit.